UPDATE 1-China approves pilot plan to set up 3-5 private banks

(Adds lending data)

BEIJING Jan 6 China has approved a pilot scheme
allowing the setting up of three to five private banks, the
regulator said on Monday, in a step to boost financial support
for cash-starved smaller firms.

The China Banking Regulatory Commission (CBRC) would
maintain "prudential regulatory standards" in approving private
banks, it said in a statement following a meeting on banking
supervision.

"The first-batch of three to five private banks will be set
up under a pilot scheme," it said, adding that a private bank
would be established only when conditions are mature. It did not
elaborate.

Chinese leaders have pledged to open up the banking sector,
now dominated by big state-owned lenders, to private investors
to help boost competition and increase lending to small firms,
who are often neglected by the big banks.

China Minsheng Banking Corp. is the only private
bank among the country's 10 largest commercial lenders.

Small- and medium-sized enterprises (SMEs) account for 60
percent of China's gross domestic product and some 75 percent of
new jobs, but they are struggling to cope with weaker global
demand and tight credit.

Retailer Suning Commerce Group and the Internet
giant Tencent Holdings are among firms keen to
establish private banks.

The banking regulator also said it would take steps to rein
in banking risks in 2014, and reiterated that it would take
measures to resolve risks linked to local government financing
vehicles and tighten rules on wealth management products.

Separately, banking industry sources told Reuters that
Chinese banks made 8.9 trillion yuan ($1.5 trillion) in new
loans in 2013, which implied around 500 billion yuan in new
loans in December alone.

For all of 2013, Chinese banks' outstanding loan growth was
14.2 percent while banks' non-performing loan ratio stood at
1.05 percent as of December, the sources said, citing a speech
made on Monday by Shang Fulin, the head of CBRC.
(Reporting by Victoria Bi in HONG KONG and Kevin Yao in
BEIJING; Editing by Nick Macfie)

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